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When my children were still in primary school, I once asked them whether I'd ever said how much I love them. "Yes," responded my truculent son, "but not with money." I think of this every time I hear about efforts to use monetary bonuses to encourage executives to reduce emissions, make factories safer, or improve gender balance.
Make bonuses depend on progress, advocates say, because bonuses are the only language executives understand. Well, in that case, it's about time executives learned another language. Bonus-based pay packages are a mess. Bonuses have their uses but they're a blunt instrument that can foster selfishness, backbiting, even cheating.
Adding non-financial goals also complicates what is already a baffling array of executive incentives. Last year, Coca-Cola assessed the performance of, its then, Chief Executive, Muhtar Kent, on no fewer than six strategic initiatives. People, planet, productivity, partners, portfolio, and profit. I question whether he pondered for long, the impact on his pay of the many non-financial decisions he took. In any case, most of his eventual bonus was based on financial results.
Research shows bonuses can get in the way of our intrinsic motivation to do the right thing. I'm particularly queasy about offering cash for good intentions that should be the norm. In fact, I fear the main effect of focusing executives attention on bonuses for being cleaner, safer, or more inclusive, will be to remind them, the biggest rewards are available for the headlong pursuit of pure profit.
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